M&A, Business Models and Ecosystems in the Software Industry

Karl´s blog

Posts tagged merger integration
M&A digitization:Leveraging the domain model to map M&A data rooms, process tools easily

The domain model will consist at least of the following parts:

  • A data model that shows the data objects that are involved in M&A transactions and processes.

  • A Hierarchy of tasks in different phases of M&A Processes.

  • APIs for data objects and tasks.

The domain model is a programmable model. This means it is available electronically and can be navigated and displayed as you wish. It is implemented in a set of Prolog facts and rules.

Here is a first view at the phase Due Diligence. It consists of the tasks Target Due Diligence, Integration Approach Blueprint, Merger Integration Due Diligence, Deal Making and Finalize and Approve Due Diligence Business Case. Each tasks will be documented by its goals, the data objects used and a task description.Each of the data objects will be also represented in JSON notation as well as an API documentation.

duediligence.PNG

Here is an example of the documentation of each task. The task Review Merger Integration Project works on concepts

 Integration Project Plan, Integration Budget, Stakeholder, Integration Success, Integration Project, Integration Project Resources.

It has the goal (that describes the result):

Integration project: tested and verified

and the objectives, which describe the qualities of the result:

 Integration success: maximized
 Quality: maximized

It has the following task description:

We review the structure and behaviour of the merger project. It is important to remember that the word "project" means that we have a professional management of integration by professional project managers who are experienced with complex projects and equipped with the skills of a certified project manager. We should also set up a project steering committee that has comprehensive competencies and can make decisions quickly.
The word "project" means that we have a project structure plan with tasks to be performed in the project. Buying companies that make frequent acquisitions have a project structure plan template that they adapt to each of the new merger integration projects. This ensures completeness and also allows a correct assessment of whether we have sufficient resources and whether the resources know what to do in the merger.
But we also focus on providing answers to questions like: Do we have the right resources for the integration tasks in mergers? Are the resources able to perform the tasks assigned to them? Do the resources have adequate social skills to guide people and convince them to integrate?

So stay tuned for more information. One of the next blogs will talk about programming on top of the domain model.

What is merger integration? What do i have to do?

The task of post merger integration

An important ingredient in acquisition strategy is how you integrate the acquired company. Let us describe the task of post merger integration with goals and objectives. You have to think well about goals and objectives, since these will define what is being done through merger integration.

Goal of the merger integration task

The goal of post merger integration is to plan and execute the integration of two businesses. WIthin each business, there is an organization and there are many processes, which are to be aligned and/or integrated.

Objectives of the merger integration task

  • Maximize likelihood of integration success: each merger integration tries to reach successful completion meaning that there is no failure of the integration.

  • Continue target operations: in most cases, it is important to not interrupt the target operations with merger integration activities.

  • Fit integration type: there are different ways to integrate two companies, which are determined in the integration strategy. more information about merger integration types can be found here: Merger Integration Types

  • Fulfill synergy objectives: every merger has synergy expectations and objectives. Merger integration is targeted at creating such synergies.

Decomposition of the merger integration task

There are three subtasks: designing the new entity, planning merger integration (project) and executing merger integration project.
The first two should be started during due diligence to ensure merger integration success.


MergerIntegrationTaskDecomposition.png
M&A digitization: A first glimpse of the domain model

The domain model will consist at least of the following parts:

  • A data model that shows the data objects that are involved in M&A transactions and processes.

  • A Hierarchy of tasks in different phases of M&A Processes.

  • APIs for data objects and tasks.

The domain model is a programmable model. This means it is available electronically and can be navigated and displayed as you wish. It is implemented in a set of Prolog facts and rules.

Here is a first view at the phase Due Diligence. It consists of the tasks Target Due Diligence, Integration Approach Blueprint, Merger Integration Due Diligence, Deal Making and Finalize and Approve Due Diligence Business Case. Each tasks will be documented by its goals, the data objects used and a task description.Each of the data objects will be also represented in JSON notation as well as an API documentation.

duediligence.PNG

Here is an example of the documentation of each task. The task Review Merger Integration Project works on concepts

 Integration Project Plan, Integration Budget, Stakeholder, Integration Success, Integration Project, Integration Project Resources.

It has the goal (that describes the result):

Integration project: tested and verified

and the objectives, which describe the qualities of the result:

 Integration success: maximized
 Quality: maximized

It has the following task description:

We review the structure and behaviour of the merger project. It is important to remember that the word "project" means that we have a professional management of integration by professional project managers who are experienced with complex projects and equipped with the skills of a certified project manager. We should also set up a project steering committee that has comprehensive competencies and can make decisions quickly.
The word "project" means that we have a project structure plan with tasks to be performed in the project. Buying companies that make frequent acquisitions have a project structure plan template that they adapt to each of the new merger integration projects. This ensures completeness and also allows a correct assessment of whether we have sufficient resources and whether the resources know what to do in the merger.
But we also focus on providing answers to questions like: Do we have the right resources for the integration tasks in mergers? Are the resources able to perform the tasks assigned to them? Do the resources have adequate social skills to guide people and convince them to integrate?

So stay tuned for more information. One of the next blogs will talk about programming on top of the domain model.

Scaling new business models in corporates: Similarity of M&A and digitization initiatives

Scaling new, unfamiliar  business models is a popular topic in large corporates. These new business models might originate from internal or external initiatives, even from acquisitions. How can corporates scale new business models successfully in such situations? Here are my views on it.

Not the usual merger

A widespread perception of mergers and merger integration is that an important objective of such activities is collecting cost synergies or consolidating industries or buying your way up and down the supply chain. Scale and growth are a second thought, if at all. This is different in high tech industries, such as pharma and software. This is different and even more challenging when acquiring and scaling new business models.

Similarity of M&A and Digitization initiatives

A large company acquires a small company to adopt a new business model. An intrapreneur tries to implement a new business model in a large corporate.  Both represent the same type of challenge:  making an existing organization adopt a new business model.  Both can be solved with appropriate, new approaches.

Modulating the corporate immune system

Integrating new business models needs new approaches. The acquirer has to ask the question: “Why have we acquired the company?” If the answer is: “Because they are different” or “Because they have a business model that is new to us”, the acquirer should carefully select integration speed and depth. The acquirer should also make sure that he is preparing his own organization to be ready and able to integrate the new business model. Getting prepared for that might take some time, which influences integration speed.

The acquirer also has to manage the “corporate immune system” which typically rejects new business models due to employee statements like “not invented here” and “that is not the way we do it”.

Change intensity in your court

While in usual merger integration most of the changes happen to the target, this is a different ballgame. A massive change in the operating model  of the acquiring organization is needed. Such change is only possible if the large organization is willing and able to change.  In addition strong empowerment and executive support is needed to establish such change.

Thoughts on merger synergies

A (positive) synergy is the increase in shareholder value coming from mergers and acquisitions activity. Below is a list of potential synergies that are usually considered for mergers and acquisitions. If a synergy applies for a deal and how big the synergy is has to be analysed and planned for each deal.

Keep in mind that synergies are not self-fulfilling prophecies. You need careful planning, execution and tracking of synergy related work to realize synergies.

Synergies seen from outside of the companies

Looking at a company from the outside, the synergies of a merger can come from the following sources:

Relationship to Suppliers

  • increased negotiation and purchasing power

  • consolidation of existing suppliers and contracts

  • leveraging better existing conditions for a supplier contract from target or acquirer

Supplied goods and services

  • increase in purchasing volume and potentially a decrease in price

Relationship to financial institutions

  • increased negotiation and purchasing power

Relationship to customers

  • increased negotiation and purchasing power

  • increased revenue from upselling and cross-selling opportunities

  • increase in portfolio assets to be sold to customers

  • increase in the number of customers and/or markets covered

Sold goods and services

  • revenue effects from broadened portfolio

  • faster time to market since acquired goods and services are available immediately for selling by the acquirer

Relationship to partners

  • increased number of partners

Relationship to government and states

  • potential synergies for corporate tax

 

Synergies seen from the inside of companies

Synergies for all corporate functions

  • Centralization of tasks and elimination of organizational and functional redundancies is often cited as a main source of synergies

 Synergies for the business models

  • The target introduces a new business model for the acquirer

Cost synergies

Looking at cost synergies, two main sources of cost synergies are often cited: elimination of redundancies and reduction of inefficiencies.

Learn more from my upcoming book on merger integration.....

 

(C) Dr. Karl Popp 2019

A practitioner´s view on risk, risk perception and risk handling in merger integrations

Every acquisition and merger integration carries numerous risks. Actually, acquisitions and merger integrations have a bad reputation due to risk. Many integrations fail or do not reach objectives in a sufficient manner. This is why it is important to detect, evaluate and to manage risk in M&A transactions and in merger integration.

Risks can e.g. originate from the target company, from the acquiring company and from the integration of the two companies. In the best case, these risks are determined in due diligence, mitigations are planned and all is being handed over to the integration team as soon as possible.

Risk discovery in due diligence

While the target related risks are analyzed in detail in due diligence, the risks related to the acquiring company and the risks related to the integration itself are often neglected. In addition, not all risks can be determined in due diligence alone, new undiscovered risks might come up during the integration.

What you see is all there is

We learn from Kahneman that the risks that are being found depends very much on the experience of the people looking for risk. He says that you will only find the risks that you have experienced, heard about or read about.

This is why it is very important to use risk catalogues, experienced integration managers and risk managers. Walk through the risk catalogue to see if there are applicable risks, use your own or somebody elses experience to determine additional risks and run a risk workshop with an experienced risk manager.

Key risks in merger integration

Experience shows there are risks in merger integration that occur in each acquisition. While there are many risks outside of companies, let us focus here on risks inside the involved organizations. From my point of view, these reoccurring risks are:

  1. Brain drain/Attrition: key employees or a large share of employees from the target are leaving.

  2. Cultural integration problems: people don´t feel at home, feel lost or frustrated and thus attrition increases and people are leaving.

  3. Wrong perception and estimation of integration complexity and effort: acquisitions can get complex on many dimensions like size of the target and acquirer business, number of companies, countries and locations involved. With the complexity, the effort may skyrocket.

  4. Bad management of the integration scope and integration project: these are generic project management problems revisited. They also occur in merger integration projects.

How to deal with risk

In my view, there are four ways to deal with risk: Ignore, monitor, mitigate and sell.

Ignoring risk is dangerous alternative. If at all, you should use ignoring only for a risk that you think has very limited impact on the success of the merger integration and very small likelihood. And you have to be aware oft he difference between probability and likelihood. Likelihood means you only have a guess about the chance of a risk to become true and impact the merger integration.

Monitoring risks is a slightly better approach to risks. In this case you simply watch the risks to see if the likelihood or the impact has changed. If a likelihood or impact increases, you might switch to one of the following alternatives.

Mitigating risk is the preferred approach. This means you are trying to establish counter measures to be able to avoid the risk or reduce the likelihood or the impact of the risk. Be aware that mitigations needs people, time and budget to work.

If certain risks are perceived to have a massive financial impact and cannot be properly mitigated you might want to sell these risks to insurance companies. One example might be environmental risks of manufacturing plants.


Change management in post merger integration and the role of the change manager

Change management in PMI is the process and methods (tools) to manage the people side of the integration to achieve the declared PMI goals. Therefore, it is important to link the change management to the PMI strategy and the project management in the PMI project. (integrated change management approach). Both change management and project management support the PMI transformation – moving from the actual organization of the Target through a change period (managed via the PMI project) to the future state (successful integration of the Target organization). Integrating the newly acquired company into your own organization, you are ultimately going to be impacting the following aspects: PMI Strategy, Structure (process organization and structural organization), People (like job roles) and Culture. Whenever you adjust those elements in your own organization or at the Target level you need to manage the technical side as well as the people side.

The role of the Change Manager

Experience has shown that it is supportive to inform the top and middle management upfront and to use them as multipliers. In that regard the preparation of Q&As is helpful and enables to speak the same language and to deliver equal key messages.
Who might be the adequate change agent? This depends on your own as well as on the Target organizations. Supervisors and Managers are Change Agents. Change Management is a leadership topic. Enable managers in their role as change agents through empowerment and awareness-raising workshops. However the concrete involvement and role depends on your specific PMI project. Undertake a stakeholder analysis as early as possible to identify the sponsors and other important multipliers.
The key element in change management is to set up a good communication from the start of the PMI process onwards. There is a need to effectively communicate the change to the employees – communication cannot be overdone. Set up a communication plan already during the due diligence phase. The main questions in that regard are:
• What is my PMI vision and mission? Is my message clear?
• Who is my audience, who is the right sender? (strategy issues should be communicated by the
Top Management level, personal topics (WIIFM=what is in it for me) as new job role by the
direct lead)
• What are the key messages? When is the right time to deliver the message? What is the right
delivery method and frequency?


M&A thought leadership: Frontloading makes sense in M&A processes

Failing early is cheap

We know from software engineering and design thinking that failing early in the process is cheaper than failing in later stages. We adapt this thinking to the M&A process and care for ensuring merger integration success during due diligence. I call this frontloading.

Successful integration and synergies as an objective in all phases of the M&A process.

So, why are we doing frontloading? Frontloading is driven by the objective to prepare and run a successful merger integration project. All detectable risks, efforts and obstacles are identified and taken care of during due diligence already. These risks, efforts and obstacles relate to the target and the acquirer, too.

Mitigations or eliminations for risks are planned or executed during due diligence. Merger integration efforts are being estimated and planned. Any obstacles we could run into during merger integration are being identified and elimination or mitigations are planned. Examples for obstacles are missing resources or missing budgets for merger integration. While missing resources could be mitigated by leveraging additional resources or adaptation of the merger integration plan, missing budgets could be planned for already during due diligence.

Effects of frontloading

There are several positive effects of frontloading for the operations of mergers and acquisitions business:

  • A more realistic evaluation if the merger makes sense at all. Clarity on adverse topics like risk and obstacles completes the managerial view to take an informed decision about a merger. Frontloading increases the ability to get a complete and holistic view of the planned merger and merger integration.

  • A more appropriate expectation setting with executives monitoring the merger integration. When the executives approve the merger, they know about the potential risks, issues and obstacles that were or were not mitigated.

  • More realistic integration plans and integration speeds. When you know what to do in merger integration and you have enough capacity and ability to integrate quickly, all is fine. If this is not the case, you risk failing during merger integration or creating bad integration decisions and results. Frontloading helps to avoid some of these adverse events.

  • Less bumping into obstacles. Let us be clear. Nobody likes to run into a roadblock like missing budgets and losing momentum of integration efforts. This is why we care for identifying and eliminating obstacles. Are we able to eliminate all roadblocks in merger integration? Definitely not. But we reduce the sheer number of obstacles and we can dedicate more of our time and attention to the remaining obstacles.

As a consequence, all companies should adopt frontloading in due diligence, no matter if the deal is an asset deal or a share deal, if the target is a public company or not.

How well does that resonate with you? Please let me know your thoughts.

Key questions regarding software tools for merger integration

Let us discuss tools for successful integration. We are not not referring to system integration, but tools for managing and supporting the Merger integration process from pre-deal through due diligence, up to and including post merger integration.

Today, Excel and Power Point are currently the most used tools in the M&A transaction/integration world. There are also several Virtual Data Room providers that offer solutions at a high cost.

For managing the end-to-end process, Excel, Power Point, and Share Point on their own do not really work. Every project is different and one needs to be aware of the complexity that tools bring with them. So do tools really work? Do they add value and justify the cost and time to introduce & maintain? Does email communication from a tool work?

We can at least specify a list of requirements that a tool should address:

  • Project / Deal based

  • Document repository capabilities

  • Project Management capabilities

  • Communication/collaboration capabilities (email/messaging/collaboration)

  • End-to-End process management (i.e. transition of Due diligence /Data Room info to integration team)

  • Reporting capabilities (i.e. on a project basis, and or for the entire deal pipeline/project portfolio)

  • KPI tracking capabilities

  • Knowledge bank capabilities

  • Highly performant and highly secure (especially with cloud based solutions)

  • Stable (i.e. updates must have no impact)

  • Highly configurable

  • Easy to deploy & configure

  • Easy to use with little/no training


M&A thought leadership: Integration of new business models: dimensions of similarity

No matter if you integrate a target running a business model that is new to your company or if you want to disrupt your business model or if you ask intrapreneurs to come up with new business models; you will face one big issue: how to integrate the business model that is new to your company. So, “new” means that the acquirer is not capable of running the processes that support such business model (yet).

Business models and operations models

I would like to separate two dimensions here: business models and operations models. A business model tells which goods or services are provided by a company and how the company is compensated for the goods and services. It is a model on a type level, like a company running field service management solutions in the cloud for a monthly license fee. It already describes on a general level what a company is doing. On this level of granularity, companies can easily be similar.

A business model can be implemented in an operations model. The operations model shows how the business is run and how the resources of the business run the corresponding business processes in the company. This model is very concrete, detailed and more complex and involves resources running and used in the business processes like employees or application systems. On this level of granularity, it is harder to tell if two operations models are similar.

In the following, I would like to share insights from integration acquired software companies about the impact of the similarity on merger integrations.

Similarity of business models

The more similar business models are, the better the operations of these business models can be integrated. The operations might be similar; sales and accounting processes might only need small changes to be adapted. But there might be issues with overlaps in organizations.

For software companies, this means easier integration in development and support but also in administrative functions. So you should look for similarities and differences by listing/modeling the business models of target and acquirer already in due diligence.

In contrast, if business models are very different, this might pose a challenge for integration. You would have to decide if you want to continue the different business models and if so, changes needed to continue both business models have to be executed in merger integration. For merger integrations targeting absorption, this might mean that the acquiring organization would have to adapt to a diverging business model of the target.

Similarity of business models enables higher speed of integration: The more similar business models are, the better the operations of these business models can be integrated. This enables higher speed. The reverse is also true. If business models are significantly different, this might impose slower speed of integration.

Similarity of operations models

Operations models are implementing business models. How a business operates is a key thing to understand for integrating a business. The closer two operational models are, the easier it is to integrate both businesses with each other. You may use operations maturity models to determine the current and desired state of target and acquirer operations.

An example for similar operations models is having the same objectives for procurement at the acquirer and the target. If both companies look for maximum quality of supplies in procurement it might be a lot easier to integrate procurement processes, to align demands, to analyze and plan cost synergies.

Similarity of operations models enable higher speed of integration. How a business operates is a key thing to understand and to integrate a business. The closer the operational models of acquirer and target are, the higher the speed of integration can be. There also i a higher likelihood of economies of scale effects and cost synergies in such cases.

For more insights, please refer to the book "Mergers and Acquisitions in the software industry: Foundations of due diligence"

Two best practices for managing the integration project

Best practices in merger integration have to include many aspects like timing, project management, handling exceptional situations and decisions and when to end the integration project.

In merger integration activities timing is essential. So when is the right point in time e.g. to merge teams of acquirer and target that do similar things? When is the knowledge of the acquirer complete to integrate HR functions of the acquired company? When is the right time to end the integration project?

Merger integrations are also high-risk, high effort topics that have to manage numerous exceptional situations. Project management practices are made for such projects. But there is the risk of keeping project members hostage in reporting activities instead of focusing on resolving issues and completing tasks. So a key aspect is to find the right dose of project management for keeping project control by providing appropriate follow-up and execution of critical tasks and minimizing the project management workload on project members.

Let us quickly look at the topics:  “When to mix up teams working on the same topics?” and “When to declare the end of the integration project?”

When to mix up teams working on the same topics?

So when is the right point in time e.g. to merge teams that are working on the same tasks, selling to the same customers, producing similar work results? We discussed different aspects.

The first one is that the acquirer has to have sufficient knowledge about all departments or teams that have to be integrated. Without that knowledge it is impossible to plan and execute change management needed for the transition into a merged team.

The second aspect is if the time is right to integrate if the immediate value of integration is maximized or the confusion and trouble is minimized. One example is the immediate integration of finance activities for maximizing the value for the acquirer to be in control of finance. Another one is integration of sales teams to avoid having two different, competing sales teams as “one” face to the customer.

When to declare the end of the integration project?

Ending the integration project makes sense when at least one or more of the following goals have been reached:

·         integration plan has been fully executed,

·         benefits of the acquisition have been reached or

·         organizational performance (fully functioning and stable merged organization) is ensured.

The selection of one or more of these goals depends very much on attributes of the merger, specifically on the department (or corporate function) to be integrated, on the culture of the target and the acquirer and on the integration strategy, like e.g. if the target should stay separate or should be fully integrated into the acquirer. Depending on the size of the M&A and merger integration team, the support of these teams might end earlier due to high workload or focus on new, different M&A and integration projects.

Find more information in the book “Mergers and acquisitions in the software industry” (click here for German version) and at the German Event Denkfabrik 2019

Skills of Integration Managers

The success of a merger integration program highly depends on the skills of integration managers and the integration team´s skills. So, what are these skills?

Skills of Integration Managers:
Managers that assign responsible for managing an integration project on a day-to-day basis require various personal skills, such as listening, communication, stakeholder management and people skills. However, in addition to these “soft skills” Integration Manager require also more “harder skills” such as project management, business know how and organizational know how. The entire skill-set that is required for successfully managing a post merger integration can typically be acquired only through first hand experience on-the-job. Therefore a valid question in many cases is, if one single individual should manage an integration project alone. A team of people with complementary skills that is led by a senior executive might be a more appropriate solution for integration management in many cases. However, taking into consideration that corporate top performer are typically not sitting on the bench waiting to be assigned to any post merger integration project (but are rather already busy with other important tasks) staffing of Integration Management is a often marked by compromises.

integrationmanagerskills.JPG

 

Skills of integration team members:
Skills that are required on the level of integration teams might include among others leadership, operative know-howand team management. Different to Integration Management where only few peoplemight get involved (often located within one corporate center) 100 and more operationalmanagers across various geographic regions are easily tight up as team members in a post merger integration. This includes typically not only managers and staff from the buying company but also managers and staff from the target company. Therefore PMI training with regard to team members is often more complex than with regard to Integration Management. Due to confidentiality aspects, time constraints and geographic spread in many cases pure digital courses that are accessible across multiple technical devices and teaching environments are the only way to train 100 and more operational manager from both the buyer and target being.

Come to the European workshop on merger integration and learn more

How Real-Time Transparency Makes PMI Meetings Effective

Your Integration framework is in place. Functional leads are fully armed, and at their battle stations. Ready… Set… DAY 1!

As soon as the clock starts ticking, every second in a PMI project matters. Speed in M&A integration execution does bring value and it correlates to the success of M&A. With the ever-decreasing timeframe in which integration leads are expected to realize synergy targets, there are few things more important than a structured and diligent integration plan. But when day one hits and Pandora’s box is open, being able to track the success of your plan in real time is crucial to hitting your targets.

Weekly meetings are the lifeblood of most integrations, and have been the best practice until recently. Whether it is program meetings, project meetings, or Executive Steering Comittee meetings, there are a few data points that need to be tracked consistently at a high-level.

  • Issues

  • Task Status/Milestones

  • Timeline

  • Responsibility

Classically, the integration leaders ask for updates from each functional lead/project manager, and get a verbal play-by-play of the past week’s happenings. In our current, tech-driven world, there are now digital tools that can increase meeting productivity and give M&A teams instant transparency into their processes. Integration team members can see what’s happening prior to meetings, ensuring focus on how to address issues, decisions needed, cross-stream dependencies, etc. This means that meetings’ action items are clearer, and time is spent proactively working towards targets, rather than retroactively getting updates on who did what, when.

Each of the integration performance items above are affected by the PMI teams ability to have “real-time” visibility:

Issues

Having instant visibility into the status of any potential issue enables corporate development teams to address risks before they damage the deal. Any PMI project will run up against unforeseen challenges, but proactively resolving issues leads to an increase in deal speed and value realization.

Task Status/Milestones

Many teams have thousands of tasks per integration, but there are always key milestones against which success is measured. Having the opportunity to check on the mission-critical items at a moment’s notice shortens the feedback loop within teams and empowers integration leads with the information they need to benchmark their teams against their schedules in real time.

Timeline

Let’s face it. Integrations very rarely hit timeline expectations. But, knowing where you are in relation to your goal is crucial. Having that 1-week gap in status update between team meetings might just be the difference between being on time and falling far behind.

Responsibility

PMI projects have many moving pieces in play. Governance is complex. The PMI leads manage the functional leads, who in turn must allocate resources from within their teams. Having a central platform that acts as a single source of truth is invaluable. Immediately, it becomes clear who is responsible for a task, who has signed off on what action item, etc. When there are multiple chains of command, being able to see changes in real time gives Integration leads the bird’s eye view that is needed to execute.

To quote Mark Herndon of M&A Partners, "The time has come to upgrade M&A integration management processes with simple, secure and state-of-the-art software solutions." This real-time transparency gives cutting-edge PMI teams full visibility and control in the perfect storm that is integration.

M&A digitalization: Forget data rooms for M&A: what we need is a data lake and a data warehouse during due diligence and PMI

In M&A processes, data rooms are all over the place. They are a storage for unstructured and structured data. But these structured and unstructured data are not up-to-date, not complete and they might even be contradicting each other. They might even be aggregated in a way we don´t know and cannot reproduce and we don´t know the underlying data at all. Not a perfect situation to judge based on the numbers and documents. Making sense of this information is tedious and making decision based on this information is very risky. So, what can we do about it? Let me brainstorm a little about that….

Big data is a no-brainer

There are solutions out there who can easily and quickly analyze wast amounts of structured and unstructured data. They can analyze and interpret contracts and other documents, they can find critical clauses in business documents and find e.g. indications of fraught. They can relate information to get analytics about outlyers in financial data, from which business transactions this outlyer originates and by the way, which employee is responsible and accountable for this business transaction. In seconds. This is not a vision, the technology to do this is there and can be used that way. So we should make use of it.

What is possible today?

No matter if you do the analysis during due diligence (with limited information) or post close (with access to all information), you are able to do automated scans that provide you with the following information:

  • Technical IT landscape: which servers run where and how are they connected, which software runs on which servers

  • Business system information: which ERP systems are running, what is the business structure, through which APIs are the different business systems communicating, which companies are there, how are they interacting, which business models are implemented. You can compare different systems with each other or with a best practice template or to-be system easily.

  • Business status information: which processes are being run, how often and in which speed are they executed, how do they perform and how often are process exception handling activities executed.

To summarize, using these automated tools can increase the level of detail and precision of IT and business due diligence and provide a sound basis for a joint IT and business integration planning as early as possible in the M&A process.

Data analysis and interpretation is just the beginning

Life will be easier. Here´s my vision for next generation due diligence work based on data. Now that you found items that are interesting and you analyzed them in due diligence, you have to figure out what actions to take during due diligence and post merger integration. Machine learning is here to help. Based on a set of earlier acquisitions and the plans for the current acquisition, a machine-learning-based algorithm will propose which actions are required by the buyer or the target and/or proposed clauses in contracts to deal with this situation. Let´s imagine new ways of running due diligence and PMI

In due diligence: just give us access to a data lake of structured and unstructured information and give us access to your data warehouse structure and we can analyze the company structure, the business models and the steps needed to transform the business and to plan the integration of the business with the acquirer´s business.

In post merger integration: In addition to data lakes and data warehouses we have access to business systems details which allow to analyse, optimize, transform the acquired business and automatically get proposals which steps should be taken during the integration phase on a detailed level.

Follow me on twitter @karl_popp or stay tuned for more blog entries on innovations in the M&A process.

Merger integration success based on best practices

Merger integration success based on best practices

With all the mergers and acquisitions activity going on in the markets, it is paramount to perfectly manage the planned integration of targets into the acquiring company.

The integration strategy and the integration approach is different for each merger and each merger has different synergy objectives.

This page is meant to shed light on recent state of the art knowledge and business practices for post merger integration. It tries to structure the problem and thus to provide a way to find the best approach for post merger integration.

When to start with merger integration related tasks

We introduce merger integration due diligence as a new type of due diligence that arises from the objective “Maximize likelihood of integration success”. See the separate page for this topic.

The task of post merger integration

An important ingredient in acquisition strategy is how you integrate the acquired company. Let us describe the task of post merger integration with goals and objectives. You have to think well about goals and objectives, since these will define what is being done through merger integration.

The goal of post merger integration is to plan and execute the integration of two businesses. WIthin each business, there is an organization and there are many processes, which are to be aligned and/or integrated.

Objectives of the merger integration task are:

  • Maximize likelihood of integration success: each merger integration tries to reach successful completion meaning that there is no failure of the integration.

  • Continue target operations: in most cases, it is important to not interrupt the target operations with merger integration activities.

  • Fit integration type: there are different ways to integrate two companies, which are determined in the integration strategy. more information about merger integration types can be found here: Merger Integration Types

  • Fulfill synergy objectives: every merger has synergy expectations and objectives. Merger integration is targeted at creating such synergies.

Decomposition of the merger integration task

There are three subtasks: designing the new entity, planning merger integration (project) and executing merger integration project.
The first two should be started during due diligence to ensure merger integration success.


MergerIntegrationTaskDecomposition.png

The four Merger Integration Types

In the high level model below, you end up with four generic types of post merger integration:

  1. Preservation: The target company is preserved meaning that you leave the target company autonomous. Nevertheless, integration of financial reporting and financial processes might make sense.

  2. Holding: The acquiring company just keeps the ownership of the target company, but does not integrate the target company.

  3. Symbiosis: In this merger type, you decide where integration is needed to reach the objectives of the merger integration.

  4. Absorption: the acquiring company fully absorbs the target company. All organizations and processes of the target company are to be fully integrated into the acquiring company.

integrationtype.png

Stay tuned, listen in on twitter @karl_popp and connect with me on Linkedin for more best practices.


Die Weiterentwicklung der Post Merger Integration

Arbeitskreis PMI des Bundesverbandes M&A

Am 16.1. hatte der Bundesverband M&A seine konstituierende Sitzung. Er geht aus der Gesellschaft für PMI hervor. Der Gastgeber Prof. Feix begrüßte Vertreter von Firmen, darunter Ardex, SAP, vom Bundesverbandes M&A, darunter Herr Prof. Lucks sowie  Vertreter aus  Hochschulen an der Hochschule Augsburg.

In agilen, design-thinking-basierenden Workshops wurden  aktuelle Themen und Probleme erörtert sowie Ziele und  Themen für neu zu bildende Arbeitsgruppen definiert.

 Es wurden Themen diskutiert wie zum Beispiel  Standardisierung und Best-Practices für den M&A-Prozess  sowie Berücksichtigung von Integration Fragestellungen in allen Phasen des Prozesses, Transformation des M&A-Prozesses durch Digitalisierung,  Transformation und Digitalisierung von Unternehmen durch Firmenkäufe, kulturelle Integration, Ökosystem-Integration,  Kooperation mit Hochschulen,   Wissensdokumentation und Wissenstransfer sowie  Veranstaltungen  Des Arbeitskreises. 

Nächste Schritte sind die Aufnahme der Arbeit in den Arbeitsgruppen  sowie die Planung einer Veranstaltung, in der das Wissen des Arbeitskreises an die Öffentlichkeit weitergegeben

wird. 

 

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Ensuring merger integration success with innovative due diligence

Merger integration success based on innovative due diligence

We introduce merger integration due diligence as a new type of due diligence that arises from the objective “Maximize likelihood of integration success”.

Definition of merger integration due diligence

Merger integration due diligence has the goal to review the merger integration project and plans. 

All aspects of merger integration are being reviewed for viability and for likelihood of success. Viability relates to the work breakdown structure for the integration to be consistent and complete. It also relates to resources (employees and budgets) that have to be sufficient and available. The objective of the task is to maximize the likelihood of merger integration success.

DuediligenceTask.png

Based on the decomposition of the merger integration task we can define the corresponding decomposition of the merger integration due diligence task.

Review of the design of the new entity

The design of the new entity has to be reviewed for consistency and completeness. We start with the business strategy and plan layer and review the defined business strategy for the new entity. Then we enter the second layer and ask questions like: will the business processes work? Are the business processes compliant with compliance rules? Is governance of the business ensured?
In parallel, we have a look at the business resources and at the questions: Are enough qualified resources planned and available? Are the assignments of resources to tasks sufficient? Are sufficient resources planned and available?

Review merger integration plans

Next we review merger integration plans. Keeping in mind the design of the new entity and the resource situation, we review the schedules and the steps of the merger integration plans. We ask questions like: Can the merger integration plan be executed the way it is defined? Will sufficient resources and budgets be available at the right time to execute the merger integration plan successfully? What happens if we run late or we have resource shortages?

Review merger integration project

This is the part of the review that is often neglected in practice. We review the structure and behavior of the merger integration project.
It is important to keep in mind that the word “project” implies that we have a professional management of the integration leveraging professional project managers, experienced with complex projects and equipped with skills of a certified project manager. We should also have a project steering committee in place that has wide competencies and can drive and take decisions quickly.
We also focus on getting answers to questions like: Do we have the right assignments of resources to merger integration tasks? Are the resources capable of executing their assigned tasks? Do the resources have appropriate social competences to lead people and convince them the integration is the right thing to do?

With the results of the merger integration due diligence, you are well prepared to have the right budget, business plan and integration approach.

Events, papers and books in M&A and software business ahead of us

Dear readers,

thank you for your interest in my blog. I wish you a merry christmas and a happy New Year!

What will 2019 bring? More robots in our homes ? We already have two. One vaccum and one mopping robot. More robotic process automation at work combined with Machine Learning ? Sure. More electric cars (Maybe one for me?)? Sending an avatar to work instead of me ? Probably not. We don´t know and that makes life interesting.

Here are some things i will be working on in 2019:

Papers and books

I have the honor to co-edit an issue of IEEE Software:

Michael Cusumano, Slinger Jansen, Karl Michael Popp (eds.), IEEE Software special issue on Managing Software Platforms and Ecosystems, to be published 2019.

I will work on completing the book:

Karl Michael Popp, Successful Post Merger Integration:  State of the art and Innovations in M&A processes, Books on demand, to be published 2019.

We had a great European workshop on software ecosystems at the Platform Economy SUmmit in Berlin and will publish the proceedings asap:

Peter Buxmann, Thomas Aidan Curran, Gerald Eichler, Slinger Jansen, Thomas Kude, Karl Michael Popp (eds.): European workshop on software ecosystems 2018, Books on demand.

With the help of machine learning based translation robots, i might publish another German book, too.

Events

Besides the usual European workshop on software ecosystems and Denkfabrik Wirtschaft, a new workshop will come up, which is a discussion battle between researchers and practitioners in the topic of mergers and acquisitions in London. Xperience Connect will host several thought leadership events on Digitization of M&A and more.

All the best for you and your families in 2019

Always look to the future

Karl

M&A thought leadership: Gatekeeping and resourcing in merger integration of software companies
This is a transcript of an interview given for a master thesis with me about the integration of a smaller software company..

Question: You mentioned two capabilities, gatekeeping and resourcing . Tell me a little more about these.

KP:  The first one is a gatekeeping.  You acquire a highly innovative software company into a larger  software company and  you want to keep it  as innovative as possible. You want to integrate their offering with the rest of the portfolio. So, the question comes up: Who should build the integration? Which of the many solutions of the larger software vendor should be integrated first?  If you integrate all of them at once, the acquired company is no longer innovative.

 To solve this, you have to oblige gatekeeping.   Prioritize integrations and limit the amount of work to be spent by the acquired company on the integration to allow them to still be innovative.

Question: How did you use resourcing to find people building the integration?

KP: Since the target company had little knowledge about the programming environment of ours, it became pretty clear that the resources had to come from us.

So, we basically came up with a team of, I don’t remember exactly, several dozen people from our organization that actually built the integrations. Again, you have to be very thoughtful of how much of the overall development capacity of the acquired company you want to spend on integration.

Find more thought leadership in my books listed below.